Deutsche Bank: RBNZ - New Policy Targets Agreement

Consistent with Labour Party policy intentions, Finance Minister Cullen today signed a new inflation policy agreement
with RBNZ Governor Brash.

All the essential features of the previous PTA have been preserved, with the inflation target unchanged at 0-3%. As a
result, the alterations do not compromise the inflation target or the price stability objective and we see the changes
to the PTA as largely cosmetic.

The key change within the PTA has been the alteration to section 4 which, now states that "in pursing its price
stability objective, the Bank shall implement monetary policy in a sustainable, consistent and transparent manner and
shall seek to avoid unnecessary instability in output, interest rates and the exchange rate." This compares with the
previous section, which stated that "the Bank shall implement monetary policy in a sustainable, consistent and
transparent manner".

The announced changes are not a surprise and will not involve any modification to the way monetary policy is now
operated by the RBNZ. The change in the PTA wording was motivated by Cullen's desire "to avoid unnecessary instability
in output, interest rates and the exchange rate" that had been the experience in the mid-1990's.

In response to the changes, Governor Brash noted that he "welcomed" the change as it "made explicit the way monetary
policy in NZ has been evolving in recent years".

The changes to the PTA merely formalise existing RBNZ thinking towards taking more account of the impact on the real
economy in the achievement of the 0-3% inflation objective.

With regards to the Labour Party's proposed review of the operation of monetary policy, Cullen noted that this was
scheduled to begin in early 2000. The review would examine the instruments available to the RBNZ for the implementation
of monetary policy.

The review is likely to consider issues such as the availability and timeliness of statistics, the types of data being
collected, and other ways of improving the economic intelligence of the RBNZ.

Cullen today also briefly discussed with Brash his proposal to introduce greater transparency into the way the RBNZ
deliberates on monetary policy. Such an approach may entail the creation of a RBNZ Board (similar to that operated by
the RBA) to preside over monetary policy decision making, together with the release of minutes of these meetings.
However, one of the potential problems of this approach in NZ may be the difficulty in finding suitably qualified
impartial candidates to fill the Board positions.

Overall, today's PTA changes have no implications for monetary policy setting in New Zealand.

ENDS

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